Shortage of Li-ion Batteries to Persist in Short-Run

Currently, there is an acute shortage of li-Ion batteries globally, and the situation may last till H1 2022. China is the major manufacturing hub for batteries. Factory closures have significantly impacted China’s overall production volume in 2020, due to strict lockdown measures imposed.

Automotive in particular EVs, the major end use segment for Li-Ion batteries, is expected to continue to slash its production in H1 2022 majorly on account of supply chain pressures, semiconductor shortages etc. in turn impacting battery sales. However, with the anticipated improvement in semiconductor production, automotive sales is expected to stabilize in H2 2022 thus offsetting the impact of H1 2022 market conditions to some extent. Europe has commenced ramping up its Li-Ion battery production capacity so as to meet rising demand and reduce its dependence on China.

“The availability of sufficient lithium products and some cathode materials could pose a challenge for the battery industry so as to keep pace with demand. China is the major supplier of around half of the volume of three key raw materials used in Li-ion batteries, i.e., cobalt, nickel, and natural graphite,” said Saptaparni Kundu, Senior Analyst at Beroe. “Key battery materials such as cobalt, lithium, and nickel are exposed to supply chain risks due to their production and processing being geographically concentrated and dominated by countries that have been known to violate labor laws and human rights and are also geopolitical rivals to the U.S. and Europe”.

China currently controls nearly 80 percent of global raw material refining, 77 percent of the global cell capacity and 60 percent of the global component manufacturing. Rising fears about trade restrictions and geopolitical fall-outs between the U.S. and China (dominant player in lithium-processing and battery manufacturing) have further sparked concerns in the lithium-ion battery market. Commodity prices of li-Ion batteries especially Lithium have been steadily rising through 2021, in turn forcing battery makers to increase prices in Q3 2021 thus aggravating shortage threats and skewing demand-supply equations.

Battery pack prices in the U.S. and Europe are 40 and 60 percent higher respectively in contrast to China. Large consumers such as the automakers are opting for long term supply contracts so as to secure their battery supply in this shortage scenario. Automakers are even extending far beyond securing their battery supply by actively participating in building battery cell production capacity by means of partnerships and joint ventures with battery manufacturers.

China has the lion’s share of raw material supplies. Restrictions in manufacturing, strict lockdowns, and trade embargoes have adversely impacted the battery industry. The auto industry has been severely impacted by the pandemic. Upon revival of the auto industry, the demand for batteries rose significantly in H2 2020 thus posing challenge for the battery located in Hubei province (epicenter of COVID 19)

“Although regional and national legislation mandates are pushing the industry towards electrification so as to meet emissions targets, surging battery metal prices are likely to slow down the EV adoption to a certain extent. Nonetheless, EV players are expected to continue joint ventures with EV battery makers so as to secure their battery supply,” said Saptaparni Kundu, Senior Analyst at Beroe. “Technological advancements have led to cobalt-free batteries or batteries having less cobalt content with an aim to reduce battery cost, especially in the EV segment. While the EV sector shows signs of adoption, however, a total transition to cobalt-free batteries is still going to take some time” .